OT: Tax Compromise
President Obama indicated last night that he has reached a compromise with Republicans on a tax plan. Although the legislative process still needs to play out, the broad strokes painted by the president have boosted confidence that work on a tax plan will be completed before the Bush tax cuts are set to expire on January 1 and that more GI Joe's with a kung fu grip are going to be purchased as a result this holiday season.
Although it was a slam dunk that the lower tax rates would be extended for lower- and middle-income taxpayers, that was not the case for upper-income taxpayers; moreover, it was not a slam dunk that an agreement of any kind would be reached before January 1. If the compromise laid out by the president passes muster in Congress, those fears should be put to rest.
The main tenets of the tax plan include the following:
--Every American family will keep their lower tax rates for the next two years
--A 2% employee payroll tax cut for workers next year
--The top rate of 15% for capital gains and dividends remains in place for another two years
--A maximum 35% estate tax with an exemption up to $5 mln
These provisions were agreed to by the president, contingent on the extension of some other tax cuts and a 13-month extension of unemployment benefits.
The equity market for its part likes what it has heard and is set to open noticeably higher as the S&P futures are trading 1.0% above fair value. The bullish bias is consistent with the action in foreign markets, particularly in Europe where finance ministers refrained from announcing any new plans to deal with the debt crisis. Most major European bourses are up more than 1.0% at this time.
It is readily apparent, too, that the risk trade is back on. The U.S. Dollar Index is weak (-0.5%), commodity prices are headed higher, and the back end of the Treasury curve is getting clipped. The 1-year note is down a point, bringing its yield up to 3.04% ahead of a $32 bln 3-year note auction at 1:00 p.m. ET.
There isn't much in the way of economic data today. The Consumer Credit report for October (Briefing.com consensus -$2.5 bln; prior +$2.1 bln) is the only item on the docket.
Elsewhere, there are reports that China may be set to raise interest rates this weekend ahead of Monday's CPI report. That speculation has been handled reasonably well as the tax plan compromise in the U.S., which is supportive for consumer spending, has taken precedence as a driver of sentiment.
Focus Focus Focus Focus !!!!
AI
